THE GOVERNMENT Friday claimed that a significant divergence in levels of consumption and direction of change prompted it to withhold the findings of the survey on household consumption expenditure for July 2017-June 2018.
But all major indicators of rural demand suggest the situation has only worsened since the beginning of financial year 2019-20, and the economy is yet to see the end of the current slowdown cycle.
The Indian Express spoke to business leaders across key industries to find that all indicators of rural demand — sales of FMCG, and of tractors and two-wheelers, in non-cities — show they are still riding the trough. Other indicators, such as a sharp fall in gold imports in the last four months (half of gold demand is rural-driven) also point to slackening demand.
FMCG, tractor and motorcycle sales, as well as a decline in real wages, show that rural consumers are postponing the purchase of non-discretionary items. The possibility of a revival is at least three-six months away.
The most critical factor behind rural stress is not just the fall in nominal wage rates of labour. With CPI rising for rural labourers, real wages since March have also seen a decline. The real wage growth, adjusted for CPI-RL (Consumer Price Index-Rural Labourers), has seen the sharpest erosion in August. With CPI-RL at 6.23%, even if nominal wages increased 3.4% in August, real wages eroded by 2.83%.
While some economists say excess and late monsoon in a few large states — Rajasthan, Madhya Pradesh, Karnataka, Maharashtra and Gujarat — has suppressed farm incomes, others argue it is a simplistic deduction. “Lack of jobs due to poor or no investment over the years has meant poor incomes. Rural to urban migration for work has hardly matched addition to work force (conservatively estimated at 5-8 million a year). More people have stayed back in villages, and non-farm opportunities there have shrunk since demonetisation,” said an economist with a public finance think-tank.
A senior executive with a major FMCG company says rural consumers were holding up as late as March 2019. “After two big disruptions — demonetisation in 2016 and GST in 2017 — it was expected that we will see an uptick in 2018. The big companies passed on the benefits of lower GST to consumers. So, there were good parts to 2018, when companies like HUL (Hindustan Univeler Ltd) were growing at 14-15 per cent,” the executive said.
But in calendar year 2019, the FMCG rural demand started slowing. “Rural markets were always growing at 1.4-1.5 times the urban market… This continued till probably up to the quarter-ending March 2019. By June-end, the rural market started slowing and was growing at the same pace as urban. By September, rural was growing at half the rate of urban,” the executive said.
Rural India accounts for roughly about 38-40 per cent of the total FMCG market. “The slowdown in rural India is far more pronounced than in big cities and metros. If the urban segment is growing 10 per cent, rural is growing five per cent… and this may drop further to 3-4 per cent. People are postponing even small ticket purchases. We see things getting worse over the next three-six months. Rural FMCG sales have not yet hit the bottom,” said another executive with a top FMCG company.
The auto companies, meanwhile, are hoping for greater government intervention in the form of better support prices for crops that will boost rural incomes. For, the performance of top companies in sales of tractors and motorcycles/ two-wheelers during the current financial year, including the recent festive month of October, gives little reason for cheer.
Domestic tractor sales declined in the first eight months of financial year 2019-20. For Mahindra, the largest player in the segment with 40 per cent share, sales in each of the five months beginning April 2019 were lower than the corresponding months in the previous year. It was down 8 per cent in April, 17 per cent in May, 19 per cent in June, 11 per cent in July and 15 per cent in August.
In September, domestic sales were marginally up – 97 units more. But that turned out to be an aberration, as expectations from the good monsoons and crop prices were belied. In October, domestic sales of tractors were lower again, by almost 2,000 units or 4 per cent. In contrast, sales had jumped 17 per cent in October 2018 compared with the same month in the previous year.
When Hero MotoCorp recorded its highest single-month sales of 12.84 lakh two-wheelers in October, many saw the greenshoots of a turnaround. But more than half of this was inventory pushed aggressively by dealers during the festive month. The company despatched only 5.99 lakh two-wheelers during the month, 18.43 per cent lower than sales in October 2018.
Hero MotoCorp, which has the largest share of almost 46 per cent in the two-wheeler market, saw a continuous dip in sales in the first six months of 2019-20. Except for May, when it dropped 7.7 per cent, the dip was in double digits. Bajaj Auto and TVS, two other big players, recorded a decline in sales even in October.
A continuous decline in gold imports over the last four months also indicates the stress. In October, India imported 38 tonnes gold, 33 per cent less than in October 2018. In July, August and September, gold imports had plunged 55 per cent, 73 per cent and 68 per cent, respectively. In contrast, during the April-June quarter, gold imports had surged 35.5 per cent.
Analysts say any income usually gets saved in the form of gold in rural areas, especially among those that lack access to banking. The government did hike customs duty on gold in the Budget, but the sharp fall in imports cannot be attributed to the increase from 10 per cent to 12.5 per cent alone, they say.